NEW DELHI—
Singapore Airlines Ltd.
and India’s Tata Sons Ltd. will start flights of a new joint venture airline in India early next month, a market where high costs and low fares have pushed most carriers into losses.

Flights of the new full-service airline named Vistara will begin from January 9. The airline will initially have a fleet of two
Airbus
320-200 jets that will fly on routes connecting three cities-Delhi, Mumbai and Ahmedabad.

Vistara’s launch comes close on the heels of budget carrier SpiceJet Ltd. reducing its flights due to a financial crunch. Kingfisher Airlines Ltd.-a full-service carrier-has also stopped operations for over two years now, underscoring challenging operating conditions because of high jet fuel prices and airport fees.

Although higher costs are hurting carriers, intense competition has made it difficult for them to raise fares. Consultancy firm CAPA-Centre for Aviation estimates that accumulated losses of Indian carriers, which have reached $10.6 billion, would rise by another $1.4 billion in the fiscal year ending March.

Still, the Indian market is luring new entrants amid expectations that it will grow into one of the world’s largest aviation markets by 2020, say analysts. Only a fraction of the people in India now travel by air, offering vast potential for the market to expand.

“We aren't disillusioned by the market realities,” Phee Teik Yeoh, chief executive of Tata SIA Airlines Ltd. said at a news conference Monday to announce the start of flights. “We believe strongly in the immense potential that the Indian aviation market has to offer.”

Vistara expects to add three more Airbus 320-200 planes by the end of March and an additional 15 planes over four years, Mr. Yeoh added. All the planes would be taken on lease.

Mr. Yeoh said Vistara could speed up its fleet expansion plan and add bigger aircraft including Boeing Co. planes if the Indian government removes a rule that bars local carriers from starting overseas flights before completing five years of domestic operations.